Google to acquire video site YouTube for $1.65 bln
Mon Oct 9, 2006 10:13 PM BST135


SAN FRANCISCO (Reuters) - Web search leader Google Inc. said on Monday it agreed to acquire top video entertainment site YouTube Inc. for $1.65 billion in stock, putting a lofty new value on consumer-generated media sites.

The deal, the first to value one of the new crop of user-participation Web sites at more than $1 billion, combines two of the most popular Internet brands: Google, synonymous with Web search and rapid innovation, and YouTube, a Silicon Valley upstart that has spearheaded the video-sharing craze.

In anticipation of the acquisition, investors pushed shares of Google up $8.50, or 2 percent, on Nasdaq on Monday to a closing price of $429.00 -- a level not seen since late April. In extended-hours trade following the announcement of the deal, Google stock dipped to $427.63.

The stock had already gained about 2 percent on Friday when reports emerged that a Google-YouTube deal might be in the works. In the last two trading days, Google has added nearly $4 billion in market capitalisation, or more than twice what the company has agreed to pay for YouTube.

For Google, the acquisition of YouTube would thrust the Web search leader quickly into the emerging market for video advertising, where it has only a tiny foothold compared with Yahoo Inc. and various Web start-ups, analysts said.

"YouTube is phenomenally valuable in terms of traffic and in the Internet sector this is important just like location is important in real estate," said Sasa Zorovic, an analyst at Oppenheimer.

"YouTube has almost 50 percent of the online video market and combined with Google Video, they'll have close to 60 percent of traffic," Zorovic said, adding the $1.65 billion price tag was in line with valuations for Internet businesses.

YouTube was founded in February 2005 as one of dozens of Internet video start-ups. It has exploded in popularity since last November by letting users share short clips of home videos and programming copied from television.

Reuters